ANZ, Australia’s fourth largest bank, is going up against the big boys in the race for some of RBS’s Asian assets, and on Wednesday signalled it means business by launching an A$2.5bn ($2.3bn) rights issue to fund a prospective bid.
As the FT reports, ANZ said on Wednesday it had submitted a non-binding proposal for “selected [RBS] businesses”, adding it was only one of a number parties – previously understood to have also included HSBC and Standard Chartered (both later quietly played down interest) – taking part in the auction. The RBS assets, which include retail and commercial banking operations in China, Taiwan, Hong Kong, India, Pakistan, Singapore and Indonesia, are said to be worth A$2-$2.5bn. ANZ has not identified which specific assets it is after, but China and India are stated priorities.
ANZ appears so far to have played its cards shrewdly, from the timing of its capital raising to its steady regional expansion strategy and relative openness about its plans. Although the smallest of Australia’s “big four” banks, it already has the biggest presence in Asia – having just opened Vietnam’s second foreign-owned bank this week .
Mike Smith, ANZ’s chief executive – formerly of HSBC - has made no secret of his amibitions to pursue Asian acquisitions to transform ANZ into a “super regional” bank focused on Australia, New Zealand and the Asia Pacific. ANZ’s stated goal is to be generating at least 20 per cent of revenue from Asia by 2012.
According to the FT, analysts said ANZ would have preferred to raise equity while the Australian securities regulator maintained its ban on the short selling of financial stocks, which was unexpectedly lifted earlier than planned on Monday, but that the bank was also capitalising on the recent strength of its share price, up by close to a third since February.
But other commentators see it differently: Luckily, says BusinessSpectator’s Michael Feller, “the raising, although rumoured, was largely unexpected by short sellers in the market, unleashed in all their mythical fury by ASIC on Monday”:The raising is no surprise however to those watching chief executive Mike Smith’s interest in RBS’s Asian assets, worth an estimated £1bn.While it is perhaps larger than expected, it will no doubt add some weight behind the bank’s intentions to expand in the Asia Pacific and face off RBS bid rivals HSBC and Standard Chartered without hurting its tier one capital ratio.
What’s more, the institutional share placement of A$14.40 a share (fully underwritten by Deutsche Bank, JPMorgan and UBS) got away at a discount of 7.5 per cent to Tuesday’s A$15.57 close – significantly leaner than the 10 per cent or so discount that ANZ’s three bigger rivals offered in their preceding rounds of capital raising.
Pundits give ANZ only a 30 per cent chance of winning the bid for RBS’s assets – it was, thought, afterall, to be up against some far bigger and more strongly capitalised competition. No matter, says Tony Boyd in a separate BusinessSpectator commentary. The offer “will put Smith in a much stronger bargaining position for acquiring assets in Asia” and also heads off the potential for the ANZ share price to be gamed by traders in anticipation of a major capital raising to pay for any acquisitions, he notes, adding:ANZ has taken a different tack to raising capital than its rivals. Instead of hitting shareholders for equity before announcing a blow out in bad debts and a cut to dividends, Smith has been more open about the ANZ’s financial situation. Smith was also keen to postpone any capital raising until after the removal of the ban on short-selling. He wanted the issue to be completed without artificial protection. That openness may explain why ANZ has been able to get its share placement and retail offering away at a smaller discount than its rivals.Together with its coming A$350m retail share offer, ANZ could raise up to A$2.85bn, which would enable it to fund the purchase of RBS assets and maintain its tier-one capital ratio in its target range of 7.5 to 8 per cent. Indeed, analysts broadly agreed with ANZ’s own assertion that the acquisition of RBS’s assets would “initially have a modest negative impact on reported earnings per share but over the medium term, the impact would be expected to be positive” .
However, ANZ also warned on Wednesday that credit provision charges in the second half would be about 20 per cent higher or about A$1.7bn, compared with the A$1.44bn recorded in the opening six months. It added that the banking outlook remained “uncertain”, especially with respect to credit provisions.
That less-than-rosy outlook could ultimately fuel another rumour doing the rounds, that HSBC has its eye on a different prize, and will in fact make a bid for ANZ if it stays at its present size. As BusinessSpectator says, we wonder what Aussie regulators would say about that.
Related links:
ANZ boosts capital by A$2.5bn – FT
ANZ’s long march begins – BusinessSpectator